Q2 2021 John Wiley & Sons Inc Earnings Call
[music].
Good morning, and.
And while the second quarter fiscal year 2021 earnings call.
As a reminder, this conference is being recorded.
This time I'd like to introduce Wileys, Vice President of Investor Relations, Brian Campbell. Please go ahead.
Thank you good morning, and welcome to Wiley <unk> second quarter 2021 earnings update.
With me today are Brian <unk>, President and Chief Executive Officer, and John Kritzmacher, <unk> Chief Financial Officer.
Brian and John will make some formal comments and then we'll open up for some questions.
[music] reminders and start.
And is being recorded and May include forward looking statements and rely on these statements as actual results may differ materially and are subject to factors discussed and our SEC filings.
The company does not undertake any obligations to update or revise forward looking statements to reflect.
The current events or circumstances.
Also Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends.
These measures do not have standardized meanings prescribed by U.S. GAAP, and therefore may not be comparable to similar measures used by other companies north.
Nor should they be viewed as alternatives to measures under GAAP.
Unless otherwise noted we will refer to non-GAAP metrics on the call and variances are on a year over year basis and mode and the impact of currency.
After the call a copy of this presentation and and play back on the webcast will be available on our Investor Relations Web page.
I'll now turn the call over to Wileys, President and CEO, Brian either.
Good morning, everyone. Thanks for joining today.
Our performance this quarter underscores the value of Wileys role in the global economy true.
Through the year, we seen an acceleration of the trends that have defined our markets for years.
And this is driving a strong increase and the demand for scientific research and online education.
Our first half performance demonstrates that our longstanding strategy to lead and openly search and digital career focused education is paying off especially in these extraordinary and challenging times.
Now more than ever and world is turning to research and education to help solve its unprecedented challenges.
Scientific research and firmly and the spotlight and is more and more integrated into both corporate strategy and public policy.
As part of the United Nations Sustainable development goals countries and pledged to substantially increase their R&D spending and their number of researchers by 2030.
Today as always we see invest and flowing into the most critical fields and study including areas such as renewable energy artificial intelligence and of course vaccine science.
This demonstrates how pure reviewed research always remains essential to book problem solving and innovation.
And research institutions worldwide demand to publish high quality research keeps growing and this is evidenced by a rapidly increasing publishing output.
And then to the demand to apply this research is also growing rapidly and this shows and the record consumption of scientific content on our platforms.
COVID-19 has brought the future of education forward accelerating the digital transformation and learning and universities and companies and now of course and our homes.
Career, enhancing education is increasingly deliberate on line and it is finally, becoming more affordable and more broadly available exactly what the world needs.
Once again post secondary education is proving to be counter cyclical as people seek a leg up in a tough job market.
Like the practical challenges book of delivering education, and a pandemic enrollment this fall and both for year and graduate degree programs has been much better than initially anticipated and we've seen very strong demand for our online degree programs.
We've seen similar growth and our digital content and courseware as people and pivoted to these lower priced higher and pack products.
Beyond the traditional degree demand is also increasing for new forms of credentials that are more focused and more affordable and that demonstrate that workers have exactly the skills that employers need most.
Across Wiley, we view our role is to connect education to career outcomes. The pandemic has only accelerated the global focus on closing the skill gap.
Especially in areas, such as IC and digital skills.
And this is validated our focus on these areas.
Our strategy and research has been consistent.
Publish more and published better.
Accelerate profitable growth and education services.
And drive growth and on my curriculum and courseware our investments in these areas are producing results.
Research publishing and platforms delivered robust growth again, this quarter with increasing profitability driven by continued gains and open access.
And education services, we continued to deliver strong online enrollment growth and when University partnerships importantly, we exceeded our fiscal 22 EBITDA margin goal of 15% book in the second quarter and for the first half of fiscal 21 as a reminder, our and services plan is for double digit revenue growth with sustainable EBITDA Mark.
Adjusted of at least 15%.
In academic and professional learning education publishing continued to gain momentum as the digital transformation of University education accelerated with revenue growth and digital content and courseware now outpacing the decline to print book sales, we continue to gain share and this highly competitive market.
Professional learning remains weighed down by Cobot, 19, Lockdowns, particularly and face to face corporate training. Although we are seeing very good early results from our rapid transition to online delivery.
We continue to do that.
And we continue to drive cost savings throughout Wiley and the pandemic has allowed us to move even faster as a digital company, but a mission driven culture, we transitioned rather seamlessly to a virtual operating model based on the success, we will be enabling more of our Wiley colleagues to work remotely post cobot, allowing us to reduce.
Our real estate footprint and generate material run rate savings.
Finally, wiley to free cash flow through the first half was $32 million ahead of prior year, primarily due to improved earnings.
Let's talk about our Q2 results in more detail.
Growth in our areas of strategic focus such as research online education, and digital courseware, offset cobot driven declines in print books test prep and in person corporate training.
Revenue rose, 4% over prior year and was even on an organic basis.
Our earnings improvement this quarter was primarily driven by good topline performance cost improvement from business optimization and coated related savings and.
Adjusted EPS, and EBITDA, and adjusted EBITDA were up 7% and 12%.
On a GAAP basis, we reported and additional $14 million discrete tax benefit related to the U.S. cares and for.
For the higher revenue was up 3% over prior year to $922 million adjusted EPS was up 33% to $1.41 and adjusted EBITDA was up 19% to $202 million.
Our strategies and research.
Our open access drive platform growth and optimize our publishing operations continue to bear fruit with revenue and adjusted EBITDA up 5% and 14%.
Our adjusted EBITDA margin in the quarter was 37% up from 35% in the prior year period.
Underlying the business, we see very strong growth and article output up 22% over prior year.
Some of the increase can be attributed to the unique environment and with the largest growth coming from pandemic related subject areas like clinical medicine and epidemiology.
That said, we believe strong demand to publish is here to stay it's important to note that demand was very robust prior to code and 19 with article submissions up 9% in the nine months through January 20 Twond.
So we're seeing strong secular growth in the demands and publish which of course directly benefits us.
Specially as we grow the volume driven open access model.
Our strategic national agreements in Europe are succeeding.
And they are generating publishing volumes that are material exceeding our expectations.
As a reminder, these multi year agreements or a combination of pay to read and pay to publish models and they are typically done with large national consortia in places like Germany and the UK.
We're seeing great momentum coming from these agreements and the form of increase article output and new publishing opportunities.
This quarter, we launched natural Sciences, and major New flagship Journal brand created in partnership with the influential project deal consortium out of Germany.
We're very excited about this promising top quality journal that will publish only the best research from around the world.
On the consumption side usage of our content continues to be very robust with continued double digit growth and full text downloads on the Wiley online library.
Revenue from our research platforms rose, 11% on new customer launches for literati, our industry, leading content distribution platform.
Our customer retention rate on a trailing 12 month basis continues to be an exceptional 98%.
Corporate solutions, which is another growth area for US and research continues to gain momentum for example, we've been expanding our career center platform offerings and this is starting to pay off and even deeper relationships with our leading network of societies associations and corporations.
For example, we now manage the job board for the world's largest scientific society AAA EPS, The American Association for the advancement of Science.
And we recently secured job board contracts with a global pharmaceutical companies Glaxosmithklines and Pfizer.
As a company we are acutely focused on serving researches and building a vibrant ecosystem that helps them to succeed and our results are showing it.
And the second half we have two key objectives first successfully closed calendar year 21 subscription renewals and second take full advantage of the continued strong demand to publish and our journals.
Through October we've closed about 20% of our annual renewals compared to 16% at this time last year and.
And we've made great progress and renew and key accounts.
That said, we continue to anticipate modest pricing pressure and subscriptions due to cope and related constraints and library budgets, but we expect to offset this with strong growth and open access where revenue is a direct function and the quantity of articles published.
As a market leader with nearly 1700 journal brands and an unmatched reputation we're in a terrific position to publish more including publishing more of the submissions we receive.
In the nine months of calendar year 20, we received over 600000 submissions accepting around 25% of them.
Many rejected manuscripts are high quality, but just don't fit a particular journal.
We continue to prove the improve the efficiency and transferring these articles to other wiley journals, where they do fit without sacrificing quality.
We're now using artificial intelligence to seamlessly evaluate and route articles.
Appropriate journals.
Given the breadth of our journal portfolio. This cascading capability provides an important competitive advantage and source of growth.
Overall researchers want there were published in the best journal possible and they want to publish faster.
And they want it made more discoverable.
Thus, we continue to enhance our publishing portfolio and drive innovation throughout the publishing process.
This allows us to consistently improve the impact of our journal brands and the value proposition from researchers.
As part of this we continue to continue to reduce publishing cycle times, which increases researcher satisfaction, while also improving our margins.
And academic and professional learning we continue to deliver on our strategy is to grow digital content and courseware focus on career oriented disciplines and pivot to online corporate training.
Education publishing revenue was even with prior year as digital growth offset print declines and the impact of COVID-19 on test prep.
Digital content revenue rose, 32% and Zied books or stem courseware platform rose 46%.
Overall, we continue to gain market share and higher and publishing growing it from 4% in October 18% to 5% and October 20 on it 12 month trailing basis.
Notably fall enrollment numbers and higher education continues to be better than we had anticipated in the early days of coated although still down around 4% overall.
In the past two years, we've been saying that our strategy to drive digital adoption would allow us to return to growth by driving significantly higher digital units from increased sell through as we use digital courseware to recapture units that were lost to the sale of print books through non revenue generating channels.
As you can see and our strong digital growth strategy is working and will continue to capitalize on this favorable momentum.
As noted professional learning continues to be adversely affected by Cove and 19 right.
Revenue was down 13% and.
Merrily due to severe limitations on in person training.
Results improved in the second quarter as we shifted to virtual learning grew.
And trade publishing output and.
Benefitted from some improvement in our bookstore business.
Our dummies franchise was a bright spot this quarter.
With solid year over year growth from the publishing of timely new titles on topics, such as exceeding and virtual work environments.
Overall academic and professional learning revenue declined 5% a significant improvement over the 12% and 16% declines we saw on the prior two quarters.
Adjusted EBITDA was down 10% per second quarter margin of 29%.
Our strategy to help students achieve better outcomes, while making education affordable and accessible is playing out and the success of our digital courseware platform.
So I books and new Delta we've.
We recently completed a breakthrough pilot for Zied books at the University of Phoenix involving over 800 students.
The data clearly show the die book helps students to persevere with their studies and significantly improve their performance on midterm and final exams. This along with an affordable price, it's helping cybex to win large course adoptions and grow by strong double digits.
And other news, we recently announced a partnership with Southern New Hampshire University to redesign its online and be a program, which effectively removes two huge barriers for learners cost and time to completion.
Southern New Hampshire is the largest non profit provider of online higher education, the country with over 135000.
Yes.
To build this program Wiley collaborated with the ice EPA The association and certified public accounts.
Deliver business courses that allow learners to complete their RMB, eight and one year and at a materially lower cost and traditional degree programs.
For the second half, we expect current trends to continue namely that digital content and courseware will grow strongly despite online enrollment headwinds.
Print books test prep and corporate training will remain challenged by cold and 19, although corporate training will continue to recover as it transitions from in class to virtual delivery.
I'm pleased to report that 84% of our corporate training sessions are now being delivered virtually up from 20% at the same time last year.
We expect our trade book sales to improve and the second half as we continue to publish more titles on high interest topics ranging from diversity equity and inclusion to remote learning.
Finally, we anticipate profit improvement and the second half as we realize additional business optimization savings.
And education services, our strategy is to grow online program enrollment to sign University partnerships and to drive strong profitable growth are working.
For the quarter revenue rose, 27% or 6% organically driven by 13% growth and student enrollment new student enrollment in our existing degree programs grew 22% a reliable leading indicator of future revenue growth.
Strong gains in our traditional tuition share programs were partially offset offset by lower sales of unbundled services as some clients were constrained by cobot related budget issues.
We signed full service partnerships this quarter with the University of Montana, and Latrobe University in Australia. We also signed one of our largest on bundled service partnerships to date with the University of Wyoming.
The signing of Latrobe, one of Australia is largest universities with a total of 39000 students.
Built on our strong education publishing presence in the Australian market.
The partnership will start with five graduate programs and healthcare and business administration that will launch in March.
And important accomplishment as I mentioned earlier is that we exceeded our fiscal 22 EBITDA margin target of 15%.
For the second quarter margin of 21% and a first half margin of 17%.
This milestone reflects our sharp focus on profitable growth and the optimization of the student journey from marketing to application and enrollment.
We are building a balance growth business for the long term.
Our focus on filling the IP and digital skills gap continues unabated through Covance.
While hiring has been temporarily limited.
Demand for Tech talent remains higher than we originally anticipated and we continue to fill critical roles for our blue chip customers worldwide.
As a reminder, and three create job ready talent for the world's leading corporations, including Bank of America, Morgan Stanley and JP Morgan. It does so by finding training, but financing training and placing the right candidates directly into jobs with the specific hard and soft skills. These clients require.
For the second half of the year, we anticipate strong online enrollment growth to continue and interest in online programs to remain high we see a solid pipeline of potential new University partners, and an x. and expansive opportunities inside our existing base.
We feel good about the unique position we're in.
No other competitor and the space has Wiley University reach and globally respected brands.
Hi, key talent placement volume is anticipated to be steady for the balance of the year as our corporate partners continue to build out their tech talent capacity, while and threes near term growth prospects remain a bit muted due to cobot, the intermediate and longer term growth opportunity remains strong.
We will continue to make material strides and business optimization and education services and student journey from lead to enrollment is a particular area of focus with the result, being lower student acquisition costs greater lead conversion and much enhanced user experience for prospective students.
We continue to invest prudently and the business to drive growth by signing new partners launching new programs driving online enrollment and exploiting new opportunities brought on by the accelerated shift and virtual learning.
We are also continued to expand our offerings to provide learners with a full range of outcomes based pathways to achieve their goals.
For instance, we are gaining momentum with Wiley beyond the strategic education platform for corporation that helps employees to earn degrees and certification through Wiley is unmatched network.
We signed our first corporate partners and see great opportunity ahead Wiley beyond is another area, where we are bridging education to careers outcomes.
I'll now pass the call over to John to take you through our financial profile cost saving initiatives and full year outlook.
Thank you Brian.
Our cash flow from operations and free cash flow were favorable to prior year by $23 million and $32 million, respectively, primarily due to improved earnings partially offset by unfavorable timing of working capital items.
As a reminder, cash flow is normally a use of cash and the first half of our fiscal year due to the timing of collections for journal subscriptions, which are concentrated and the third and fourth quarters.
Our strong balance sheet consistency of annual cash flows and ample liquidity afford us the flexibility to continue investing acquiring and returning cash to shareholders.
Capital expenditures, including technology property and equipment and product development spending were $47 million through the second quarter, roughly $9 million lower than prior year.
We expect full year capital expenditures to be approximately a $100 billion with investment focused on adding and enhancing tech enabled products and services and our core focus areas, along with continued investment and process optimization and workflow automation.
With respect to acquisitions, we will remain opportunistic as we look to add scale and capabilities and research publishing and platforms and.
As well as online education.
Our quarter and debt balance was up $43 million compared to the same time last year, primarily due to acquisitions, while our interest expense was down $2 million benefiting from the lower interest rate environment.
Our net debt to EBITDA ratio at quarter end was 1.9 times as compared to 1.8 times in the year ago period.
In terms of liquidity, we reported $86 million of cash on hand, and we ended the quarter with undrawn capacity of $655 million.
Our current dividend yield is around 4% and we expect to resume share repurchases under our existing repurchase authorizations as global economic stability returns.
As Brian noted, we have been expanding and accelerating our efforts increased operational effectiveness and efficiency and this unique period.
And research, we continue to invest and our publishing operations to drive improvements and publishing cycle time and cost per article.
Brian. This is also noted the successful launch of our AI enable transferred to US the system and its immediate benefit to our article Cascade strategy.
And education publishing, we are investing and ecommerce and direct channel capabilities to take advantage of the accelerated and shift to digital content and courseware.
True behalf E Commerce sales were up over 8% and now represent roughly 18% of education publishing revenue.
And education services, we are further optimizing student acquisition and marketing operations, which continue to fuel our EBITDA growth there.
As part of our overall business optimization program, we recorded a restructuring charge this quarter of $2 million related to severance costs.
We anticipate $4 million and run rate savings from these actions starting in fiscal 2002.
We continue to generate significant covert related savings on travel events and facilities expenses.
We are taking actions to sustain much of these savings and our post pandemic operations.
Among these actions we will implement a hybrid working model for many of our colleagues and reduce our real estate footprint.
Proximately, 12%.
As a result of these real estate actions, we anticipate a third quarter pre tax charge of approximately $15 million to $20 million, yielding $7 million to $8 million and run rate savings starting in fiscal 2002.
Turning to our forecast we are now initiating full year guidance for fiscal 2021.
Although our visibility remains somewhat limited given the recent surge of cobot cases, and the potential return to widespread lockdowns, we'd have a better handle on the challenges and opportunities triggered by the pandemic and we have confidence and projecting our full year performance.
For the full fiscal year, we expect revenue and a range of $1.865 billion to $1.85 billion up from $1.83 billion in fiscal 2020.
At the segment level, we are projecting low single digit revenue growth and research.
Indication services will delivered double digit revenue growth, including the inorganic contribution from our M. Three acquisition and mid single digit growth on an organic basis.
Growth and research and education services will more than offset a single digit decline and.
Mid single digit decline and academic and professional learning.
Revenue growth businesses optimization gains and co. Good related savings will all contribute to improved year over year profit performance.
We anticipate adjusted EBITDA of $380 million to $395 million up from $356 million in fiscal 2020 and.
And adjusted EPS of $2.50 to $2.70 up from $2.40 in the prior year.
And finally, we expect free cash flow of $175 million to $200 million up from $173 million in fiscal 2020, the anticipated cash flow improvement reflects improved earnings partly offset by unfavorable timing of working capital items.
Our full year forecast includes second half organic investments and strategic areas to fuel long term profitable growth.
The second half investments will largely be offset by business optimization and covered related savings.
I'll now pass the call back to Brian.
Thanks, John.
So let me recap the key takeaways from our second quarter and first half.
Our business remains strong and the pandemic has accelerated trends that support the core strategies that we've been consistently pursuing open research online education and digital content and courseware.
We're seeing significant results from our efforts to publish more and research and grow our volume driven revenue to accelerate enrollment and profitable growth and education services to return and publishing to profitable growth by driving sell through with affordable digital units.
And to improve margins by optimizing our structure and our processes.
To be sure we are experiencing some code and related disruptions to in person training and print book sales. This represents an increasingly small part of Wiley remember that around 85% of our revenue today is generated from digital products.
And tech enabled services.
The year has presented numerous unexpected challenges for Wiley performed very well during the first half of 2020.
We will continue working hard to deliver strong strong performance for the balance of the year, while taking advantage of this unique moment to accelerate our strategies and improve how we operate.
Although the pandemic continues to weigh on the global economy and parts of our business, our core markets, our Brazilian essential and counter cyclical.
Our core strategies and open research and online education are succeeding and prevailing trends and the market or reinforcing our direction and travel.
As always Wileys performance, it's a team effort and I want to thank our wonderful colleagues around the world for their commitment to our mission and for their many accomplishments this quarter.
And the 2020 comes to a close and I wish them, all and all of you very joyful holiday season and the.
Best of luck for a happy and healthy 2021.
I will now open the floor to any comments and questions.
Ladies and gentlemen, if youd like to ask a question at this time. Please press the star and the number one key on your Touchtone telephone to withdraw your question press the pound key.
Please standby, we compiled and given a roster.
Our first question comes from Daniel Moore with CJS Securities. Your line is now open.
Brian and John Good morning, Congrats on a really solid results. Thanks for taking the questions.
Let's start with.
And as I call it the online program management.
But segment already exceeded your goal of 15% margin do do we anticipate being able to sustain that level of profitability from here going forward. Just wondering if there's anything unusual in terms of seasonality or some of the investments and h. too.
Might push that down before it comes back up.
Yes ill, let John answer that after an initial comment.
Basically.
We set a target of 15 plus percent where over that and now we're very pleased and proud of that we believe that we can operate this business consistency consistently as we should profitably while growing it significantly.
And I think that the expectation we should have going forward is the 15 plus percent there is definitely some seasonality and some ebbs and flows as the.
The as the year goes through so I would basically reinforced the expectation rather than.
Rather than setting the expectation that the significantly higher level that we've already achieved.
John do you see on to that.
Very little other than to say, yes, I completely agree that the year to date trend is a better way to think about sustainable performance. They are in line with our expectations around driving growth.
So there is some seasonality on the six month trend as a better indicator of the momentum of our business there.
Very helpful. Okay.
Switching gears talk a little bit less about it typically but corporate and professional learning wondering that's you anticipate the switch to digital delivery that you're have taken obviously and Tom.
And Miss the pandemic, you expect that to remain somewhat permanent and what the implications might be for growth and margins longer term.
Yeah, It's a great question.
Corporate like everywhere else.
And we certainly seen it and our higher Ed businesses, the transition to digital teaching and learning digital training is one that comes on at the expense of some very long and well established trends and behaviors.
We were extremely positively surprised.
By how how well we have been recovering from from the initial shutdown of in person training.
It's bounced back significantly better than we thought for example, originally we were down 70% and you can imagine right now in person training means very little very little activity for us there.
But already we're back to down 30% and and that's that's terrific and at this point.
I believe its 80 or 85, I think 85% we had in the in the comments are already virtual and we're getting people who part.
Partners and companies, who had said they would never go to virtual all of a sudden do and virtual so we do expect that this has allowed us as it has across our business to lock in the digital transition in many of the places where teaching and learning exists the how that translates into growth and the profitability.
It remains to be seen but certainly trends that you've seen elsewhere as we move through digital transition should be consistent here. So yeah, we're moving faster than we thought and we think we're locking into games and I think thats, what really matters here.
Yes, and that's certainly helpful.
And maybe one more just in terms of cash generation the Guy John.
And you got to 200, just remind us cash.
The magnitude of any benefit of.
Tax deferrals from cares act or.
If I'm getting that right how that impacts cash flow. This year and just wondering if a 100 million capex is sort of the new norm more is that you are sort of pulling forward some investments.
Sure.
So.
Respect to the cash flow projection for the year again, and our expectations around free cash flow are being primarily driven by our earnings improvement year over year, and we're showing some good strength there as indicated by the full year guide that were given.
There is some adverse impact that we're in.
Anticipating with respect to working capital that's mostly due to in some cases elongated and.
Payment terms with certain customers, particularly on journal subscriptions by the way I should note that we're very pleased with our progress overall around collections were seeing minimal risk and at this point in terms of.
Debt for defaults and so we're making really good progress on collections, but there is some prolongation that plays into our forecast for the year the expectation with regard to the carriers that.
Refund that will receive that refund.
Before the end of year, so that will play into our cash result, I would just note, though that on a year over year basis, our cash taxes paid within that reduction will be essentially flat would that refunds. So so.
The fifth and neutralizing effect on cash taxes on this year.
Very helpful and I'm going to sneak one more and capital allocation just given the strength of the balance sheet results and stickiness of the business and free cash flow trends that we're seeing clearly better than expected.
I guess why wait for an economic recovery.
To be opportunistic from a share buyback perspective, thanks again.
Yeah, and I would say at this point in time.
We are.
Taking a balance between investment and the business and returning cash to shareholders and at the same time also navigating what is somewhat of an unfair uncertain period of time, I think we're getting closer to being on the other side of that uncertainty and so.
We continue to closely evaluate the opportunity to begin again share repurchases, but we're going to proceed with some degree of caution there.
Again looking for more economic stability before we go on.
Back deeply into our repurchase program.
Okay. Thank you again for the color and look forward to chat and again on next week. Thanks.
Thank you Dan.
Our next question comes from same and Cosopt with Exane BNP Paribas. Your line is now open.
Thank you and good morning, gentlemen.
I have a few questions curious first on the on research Division.
Could you please comment on the rate of revenue growth, you're seeing no production in each one.
And also can you discuss how significant.
Might be the risk of sing and bundling of the Bds and.
In the remaining 80%.
Your contracts that's true up for renewal.
That would be for research.
Then secondly on on on higher its publishing and.
I understand you guided from mid single digit decline and Academy can and professional learning but could.
Could you perhaps guide.
Four and your revenue growth you expect to see education publishing is it fair to expect and returned to sustainably sustainable growth going forward in that sub segment.
And lastly on Opn can.
Can you. Please elaborate on what is driving the decrease and student acquisition cost is.
You are seeing overall deflation and digital advertising price points for instance, or has more to do with some.
Company specific cost actions that you've undertaken thank you Brian.
Terrific. Thank you very much for those questions.
On our rate of growth and open access.
Is very very strong I believe and I'll ask John to actually give me the number now what the growth was in the first half I believe it was well John can you can you quote and were.
So setting aside if you if you normalize for the impact of the transitional agreements that we have underway and get to if you will on operational number where we are on the order book, 40% growth and and open access publishing.
GAAP, which is great right.
The exceptional growth we're seeing we're.
We're seeing very strong growth and open access great enthusiasm for our brands the.
The model as you know that peak times Q price times quantity model is one that we like a lot because it allows us to lock into the endemics growth in the marketplace.
Which as you know the the article.
Counting the world tends to go up by mid to high single digits every year and so we were very pleased with the growth we are showing and it comes from a lot of different places.
Certainly, we're getting far more submissions than we had forgotten.
You know were up in the.
And.
Hi, Twentys with regard to the volume of submissions I think it's up 28%.
Article output based upon that is up 22%.
And that allows us we get these articles buses to cascade them through our system. So yeah, we're feeling very good about the strong growth and open access if that's answering the question on on that.
The.
With regard to what's going on.
Mark.
[music].
Using.
John we still got very good.
Yes, please with regard to the big deal.
Yeah, I thought I thought John was trying to break and never mind.
Yes with regard to the big deal.
I'm getting some feedback here, so I'm, sorry, if I'm a little hesitant theres some.
Hum noise on the line.
But with regard to the big deal we.
We have.
That we have seen very consistent high renewals in our in on.
Our base of library subscription customers.
As we've discussed we have some price pressure. This do this year, we're seeing no evidence of and on bundling though.
Because the the bundle that we provide to our our institutional clients is exceptionally important and plays a very very important role and the success of their institution research winds up very high on top of the pile of things that they have to they have to have in order to be successful library successful institutions.
And so they have a successful research.
Research and discovery program and the universities.
So we're feeling we're feeling strong confident about that.
With regard to higher Ed.
And you asked a specific question about the expectations going forward, there and higher.
Higher Ed is day is a business where print declines have gone on for some time as we said the digital growth is now outpacing the did the print decline, we're very pleased to hear that but we do expect the print declines to continue for some time.
We do expect to return on that business to profitable growth as we said, we're not providing a time horizon on it because of the uncertainties in the marketplace, but the the.
The strong growth that we're seeing in the adoption of our digital programs and the.
And the sell through of in terms of when we get and adoption.
The portion of the adoption students that we can monetize is significantly.
Higher when we go digital so the math basically says, we'll do better and the long run with lower priced higher impact products with greater sell through.
We were so.
So we're confident that we will return us to sustainable growth and we will keep our eye on it you will keep your eye on that in the months in years to come.
With regard to okay and.
However.
Our cost customer acquisition cost is has gone down because of that express on.
Strategy, we made to improve the efficiency and the targeting of.
Of our advertising, we're much more efficient in the targeting over advertising and the spend and then we are much more efficient and the conversion and believes that we generate into students a very important it's been a on.
From a wild ride this year as you can imagine because of all the disruption in the marketplace.
But what we know is students continue to be interested in getting education in order to advance their career prospects and our ability to get the right message to the right students.
And is is a testament to the efficiency and effectiveness of our marketing.
Marketing colleagues and then the Sseven journey from once that lead is acquired two.
Two once they are have applied and are accepted.
It is increasing significantly so.
And we're very pleased about that there's there's no on.
There's there's no evidence of of.
Cost and Denver market costs going down for a lead but we're just getting better at finding the right students and converting and too.
Finding the right potential students and converting them into actual students.
This is very helpful. Thank you very much Brian just on the understand why.
And the electric from higher publishing is perhaps a bit more constructive and descends.
We now have digital growth offsets and print decline.
Why would you reverse true too.
Pinch to accelerate is digits it to slow down what easy and said either kind of holds you back from and more.
From a cash outlook.
Oh choke no debt.
Inflection points seems behind us.
Well, what I would say is I wouldn't say the inflection points, but it's what I would say is what I said earlier with from said digital is now outpacing print declines so the.
On the issue here is that for a number of years the the industry and we are not alone has been looking for the bottom and print sales are contained continued to be challenged as it as it continues to become and less and less on.
Preferred format for the delivery and consumption of content. So, we're just being conservative and and what we're saying about about.
When we will see the benefit from it and what we do know and I think it's very important I share your confidence, but it is and four and it is important to know that the vast majority of courses around the world are taught with caught with content that is published by Wiley or one or the other leading publishers and as we move from print to digital.
And it allows us to to repatriate those sales many of which were going through used channels or rental channels or other sorts of non pay channel. So we are we are feeling good about business, but.
But calling the exact moment and pivot into his and other short.
So it's not a view that we are and might become more of a competitive pressure going forward for you of course, you have left or conservative and this has nothing to do with it.
And now you are open education resources, what to gain more share.
No.
And with what we have found is that as we as we have as prices for our.
For our courseware has become have become.
More in line with expectations in the marketplace, we're gaining share and not losing share and there is certainly a.
Very small portion of the market that is though we are at this point in time.
But we participate in that market with our platforms and so no we don't view that day.
That is a threat to the business and the stuff that is moving and we are it tends to be Oh, we are that comes at a price point.
And so and by the way most of the OE. Our stuff is based again on publish content. So no. We don't view this as a as a as a.
My comments have no reflection on on the whole we are.
Phenomena.
And caustic many thanks for your time, Thank you Frank Thank you.
Thank you Sam.
Our next question comes from Greg Pendy with Sidoti. Your line is now open.
Hey, guys. Thanks for taking my question just wanted to understand and free cash flow guidance, a little bit more you mentioned to pre.
On a threeq you charge is that a cash charge pre tax charge on.
On that upwards of $15 million the.
The Q3 charge.
It will it will be a cash charge in the sense that.
And the sense of.
There are expenses that it will be this is due to facility charges right. So there will be cash outlays over time.
To continue to pay the those leases so its cash charge and that sense, but it doesn't change the momentum.
Cash and the short term.
Does that does that help does that answer your question.
I think so yeah and that helps you.
Two questions really specific to the to the restructuring charge right and more more more broadly I commented earlier that we've got a few moving pieces there are working on.
Capital elements that play.
Given just the timing of collections and some of the impacts that we've seen around covered on the extended payment terms with certain customers to help get through a difficult time, so there's a bit of working capital movements, but the cash flows will be primarily driven by stronger earnings performance for the year offset a bit by working capital.
The restructuring charge really doesn't have a material impact on the timing of cash flows.
For the for the year and as I said the tax refund that were anticipating is a neutralizing effect on cash taxes for the year.
As compared to prior year.
Okay, and then just I guess on that topic, just trying to understand I know you mentioned the extended payments for the accounts receivable.
Should we be thinking about that though as and you've gone through 20% of the renewals and so does that stay elevated for a while on as yet still have to work through 80% more renewals.
No I would not I would not describe this as being directly tied to the products progress of renewals we're talking about.
Extended payment terms and very limited cases, many of which are related to the timing of government funding.
In various countries around around the globe, but I wouldn't I wouldn't call the timing of our renewals.
On an indicator per se.
[music].
For the broader population, it's really it's a relatively narrow our profit part of the population that is on extended payment terms.
Okay, Great and then just one final one just on.
The inflection point, just trying to understand and.
In digital versus print declines and just trying to understand how much of that is potentially just being I know, it's being accelerated given cultivated and you've mentioned that book.
On the students are potentially getting.
Courseware bundled with their courses as their online and May.
Pivot back to print I guess, if it's classes sort of return and person is that a potential maybe step this slight step back that we might see.
Not that the try and doesn't continue towards digital but just trying to understand because given the inflection point.
Yes, it's a it's always a good question on the human behavior changes typically slowly in this case, we've seen a very rapid change and what we see across our client base is that students and professors are are adopting first because they had to because digital.
Just need the digital environment, and if you're going to teach virtually but now what we are really they're realizing on it.
That is that is working and that they can do so much more with it.
We don't we don't view.
But but in terms of a bundled they're not getting.
There are certainly bundles and these in this business, but the courses are typically.
Content is not typically bundled.
With the course.
And and typically has to go out and purchase that bundle that purchase that product themselves for the course, so theres not a bundling and bundling effect to be clear Greg.
There there may be some.
Some professors or some students that choose to return to print, but we typically haven't seen that we're the trends for satisfaction with digital products, particularly versus print products has been increasing consistently over the years and is well above 50% now and so because of that.
What we see is that this will be locked in and and move forward, we'll move forward with.
With the digital units I cant say, there wont be some some come back, but but no. We view the acceleration of trends is an acceleration of trends, it's not a onetime thing to adapt to a adapt to EPS.
And unusual events and the marketplace.
Understood. Thanks, a lot.
Our next question comes from until there is on it with Barclays. Your line is now open.
Hi, Thank you for taking my question with GAAP Corpo Sul puts you wanted to ask.
Whether your guidance for low single digits.
On research for the year to April after growth of 5% and the first half and that we should expect a journal growth to decline in calendar from 21 versus calendar 2012 and.
And then I wanted to ask if you could give a bit more color on on the pricing pressure that you're seeing and renewal and does not limited to the west institutions or Mark noble on.
Yes.
Chains, and enrollments and 22, new more on versus 22, and we are you budgeting for planning for the college textbook business. Thank you.
Okay. John you picked that up and if you can I did not get the third question. So you we may need to ask that you need to repeat that one from the call.
Let me respond surprise on the first two and then we can come back for clarification on on the on the third.
Third question. So so thank you. So your question with regard to research.
Revenue performance on the.
Second half of the year.
We are anticipating and the research segment modest growth in the second half.
Compared to the second half of the prior year, so you're you're correct.
It's presumed that we will realize on.
Slower rate of growth.
Some of that in our and our forecast is anticipating.
Some pricing pressure as we've noted around.
The subscription renewals for calendar year 21, again, we continue to expect that pressure to be modest.
And so far the evidence that weve, Cindy and is consistent with that.
But we.
Have somewhat limited visibility so our presumption on at the moment is that we'll see some pressure there that will be.
The much offset and slightly more than offset.
By our growth and and open access, but again somewhat limited visibility, but those are our expectations you got pressure on the subscription side upside on the open access side and that those are going to relatively speaking balance them out in terms of the geography around pricing pressure.
And.
I would say that its distinguished and any particular part of the globe.
As we see it today, it's largely a function of the health of the.
University customers that are.
Our subscribers.
So research universities and have a strong need for research.
So far.
Pricing pressure has then.
Again.
Limited.
In terms of both its breadth and depth. So there is no particular geography that I would point to and no particular customer base other than that the.
The institutions that are going to struggle more here clearly those that have.
Weaker overall financial position and challenges around getting through a pretty difficult period.
Right and you that and I'll get for you or your question around 2021 enrollment.
Yes, I was just wondering basically what your expectations are for 2021 enrollments on how you're planning for that four year College textbook business.
Compared to 2020.
We haven't we it has been a bit of a moving target since the beginning of the cobot crisis as we indicated in our comments on it.
Enrollment is has been a significantly better than we expected it to be with undergraduate being down a little bit.
And graduate programs and master's programs being up a little bit on a significantly community colleges were quite hard.
But we don't have too much exposure and this community college market although.
Although it is obviously an important part of the education.
The education ecosystem.
And and so it's been a bit of a moving target we havent projected the following academic year, yet and so we'll come back to that as we start to do and outlook for the for fiscal 21, which as you know excuse.
Excuse me fiscal 22, which as you know that and start for us until the middle of calendar year.
21, so so no no real comment on on forward looking although we we will continue to underscore the on.
That that enrollment tends to be.
You know tends to be counter cyclical and we expect the economic effect of coated to last for quite some time.
Right. Thank you.
Our next question comes from Matthew Walker with Credit Suisse. Your line is now open.
Thanks very much.
Two questions. If that's okay. The first is on open access you've got very strong growth on open access revenue.
On my understanding of the deals being done on a from access they would be like and upper and lower up on to revenue that the University partners would pay.
So.
No sort of day.
And in casual exponential linkage to the volume.
Of articles published it seems from what Youre, saying the actually there is a big oxy and seeds generate revenue from.
The number of optical published I was wondering if you could explain that.
Second question is Youve answered some questions on the renewal season for channels and books.
Have you seen any impact from university of using the on sub company to help them.
Got rid of unnecessary channel.
And then the fact comes from is you mentioned your market share in higher education, I think you said I could be wrong and it went from four to five.
Each of the very strong.
A full month.
That sort of implies that the mark here.
And your performance so what would what would the on growth looked like if you have and gained any share a tool. Thanks.
Thanks.
Got it and hopefully we'll be able to cover all those questions I should say will be able to remember all those questions, let's start with the overlay with the O. a growth.
So first of all let's remember that our OE growth, which is certainly very strong is made up of two parts. One part is the traditional gold away.
Article by article.
Business, which represents roughly two thirds of the growth that we were less than two thirds of the growth that we have.
Talked about this year.
The other is the true is the.
Is the volume that comes from our strategic deals that we've been talking about for quite some time and.
So so that that proportionality, it's important first of all second of all every deal is different.
Every deal has a different structure and different flavor to it. So there's no real way to fully answer your question in a single way, but what I will say is the model itself is is built on price times quantity and typically there may be an upper bound, but there and there are also there.
There are also ways for those articles to be published anyway, because the articles continued to be delivered on.
And in each one of our deals there is a.
You know that this price times quantity.
A mechanism exists the question is.
What happens if you do come to a maximum and if there is a maximum.
And the answer is those articles get published anyway, and we have to figure out and somebody has to figure out how to fund those articles. So so yes there is.
There is there.
Every deal is different the relationship or price the quantity remains and it plays out and in different ways, depending on the specific deals geographies budgets et cetera.
Of the of the cases, so hopefully that addresses that question.
Brian if I could if I just jumped on would just I would just point out that our open access business is much larger than just the transitional deals right. They represent a significant element of growth and back perhaps us business, but you know the majority of our business and open access is actually outside of those transitional deals and so there.
There is lots of opportunity for us to drive growth out of our improvements and lower volume.
Yes, yes, absolutely and as I was saying, it's sort of a one third two thirds with one third little more than one third being the deals that John and I are talking about.
And if that's what you're referring to John I think it was yeah, yes art.
Yes, no it's fine fine great.
The second question was on renewals and the ability or desire of of the universities or the library and to use different sorts and services and different sorts of approaches to more to.
To figure out how to.
Reduce their they are paid commitments and we have not seen this as and made it certainly in the marketplace certainly any smart buyer is always looking for ways to.
To make sure they are only paying for what they really need and really use and in fact, our relationships over the years have become increasingly focused on the performance, meaning the usage of the.
Of the subscriptions that people are paying for meeting the the access to the content. We've talked extensively about how significantly higher how significantly elevated those have become over the last couple of years as our usage of our content increases certainly accelerating in this past year. So there is.
Less belief that.
Than you might expect that that is not something that they ought to be paying for and we have not seen and material impact of of any.
Third party services that seek to help.
To to help libraries tailor their subscriptions and we haven't seen that affect in any material way on our business.
Then the last question, let me see if I can recall that now.
And market share.
So yes, our our market share has been increasing and.
We are very pleased with that we are seeing it and increased adoptions and increased sell through as we succeed with our.
With our programs you will remember.
If you've been following the story, which all of you have.
That we took an approach of being very active and aggressive in our pricing in a in order to make sure that.
Students and schools had access to reasonable pricing.
Which would drive in theory unit sales and happily what we've learned is as we as we significantly reduced our price points and simplified our models and Ics and increase the models by which people could get access to content or cheaper that our volume increases significantly offset our significantly offset.
Our debt.
In fact of our price reduction so that's that's really good to hear right. So what we've been talking about for a long time is the normalization of price and volume and value.
Share in the marketplace for higher Ed content.
Perception that there wasn't enough going on delivered on.
And the prices were too high.
And everyone's familiar with that with with that story right the $250 textbook.
Well now we're seeing price point, we have driven price points down to the two and.
In many cases.
50, $60 and as we do that and it's in a very simple structure and as we've done that what we've what we've seen is we repatriate more units and we're losing and that and therefore, we're giving these ex these digital products, which have significantly elevated value because of the homework systems that community the ability to collaborate.
On these systems for teachers to work with students directly so we've elevated outcomes out elevated value at a significantly lower price and therefore, the marketplaces kind of happy with it and wards and and we've been particularly aggressive and that in that area.
So.
The to the market.
The market is sold at a lot of noise in the market as print declines and the digital growth.
But what we are clear and confident on is that we are doing very well relative to the market.
Because of day various actions, we've taken to to both increase quality reduce price and ultimately service the market and a very very tailored way. The other thing to say is we tend to focus we're much more focused and most of that most of the larger competitors. We are focused on areas where the content.
Absolutely necessary for the course for the students to be successful and of course in areas like accounting or Ti and so forth and that's why we and it's one of the reasons why.
Why we can do better because the students can do without our content. So hopefully that gives you some color on the market share on the market share facts and data. We we continue to be pleased with how we're performing there.
I think what I was trying to say is that older people who.
Hopes about being close to the tipping point on.
And Jeff there happened that day individually have gained a lot of market share.
Thus, the Jeff and the underlying market.
There is not as healthy if you haven't gained any market share.
I would argue that you should study the industry statistics closely and you will see that there has materially been share shift and there has been consistent increase in the number of units sold and the industry. So we are on we're on.
I won't go into discussion of relative performance to competitors on but what we can say is that we feel and the long run we will have on.
We will have the units and the unit growth and we will have we will continue to perform well relative to our competitors.
Okay. Thank you very much thanks.
We have a follow up question from the line of Daniel Moore with CJS Securities. Your line is now open.
Thank you and I realize you've cut or covered a lot already.
Just and services just following up on the.
Decline and marketing costs can you just talk briefly about the profitability curve today for a new partner institution compared to what maybe that was a couple of years ago.
How quickly they get to breakeven and ramp to more mature levels and margins. Thank you.
Yes. So every partner is different every part and requires a different upfront investment and every partner as a different profile to get to to get to maturity.
What I can say is that the relationship between marketing cost and that is a significant and relationship and that our ability to be a much more efficient acquirer of student leads is helping us to on a.
To make sure that not just.
We get there faster, but that all of our programs are profitable as you know, we're very attentive to the profitability of our portfolio.
So so I won't make specific comments on the on the time to profitability because it's so variable.
But I will say that our efforts to.
To improve the efficiency of marketing and improve the efficiency of the student journey.
Allows us to get there allows us to get there faster and that's the point as you know.
And as well as anybody on.
The upfront marketing investment is a is a big part of what we invest and when we stand up and new partner.
And what we.
And what we do so so that the more efficient we can be there.
The net of the whole portfolio does but certainly the faster we are too.
You know to profitability and into new partner.
Understood. Okay. Thank you again.
[music].
I'm showing no further questions in queue at this time I'd like to turn the call back to Mr. any back for closing remarks.
Alright, all I'll say is thanks for joining us today and once again happy holidays, we look forward to talking to you around the time of our third quarter results in in March.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].